ECON 3430 Lecture Notes - Lecture 2: Overlapping Generations Model, Indifference Curve, Contour Line
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Econ 3430 lecture 2 notes future generations. It will be extremely useful to portray an individual"s preferences graphically: we do this with indifference curves, an indifference curve connects all consumption bundles that yield equal utility to the individual. In other words, if offered any two bundles on a given indifference curve, the individual would say, i do not care which i receive: they are equally satisfying to me. In the preceding example, if the individual were indifferent to bundles a and b, then those two bundles would lie on the same indifference curve: figure below displays a typical indifference curve. (used by prof. during lecture) In other words, we must compensate the individual with ever-increasing amounts of first- period consumption as we successively cut second-period consumption: this should make intuitive sense. C, a contradiction arises: our assumptions rule out the possibility of indifference curves that cross, we know that indifference curves represent bundles that give an individual the same.